News; Mar 7, 2008 CET

Efficient balance sheet creates value

An efficient balance sheet is one of the core elements of Swedish Match’s financial strategy. Lars Dahlgren, Chief Financial Officer of Swedish Match, is pleased with the initiatives taken during 2007, although considerable work remains.
"Our financial strategy is value enhancing in itself. The company's value depends on the future cash flows generated by the business. Particularly during a growth phase, it's important to manage capital invested in the business properly in order for the owners to benefit from increased cash flows. With an efficient balance sheet and the right mix between liabilities and equity, the cost of capital is lowered and the value of the company is maximized," says Chief Financial Officer, Lars Dahlgren.

Swedish Match's financial strategy is a prerequisite and catalyst that enables us to implement the other parts of the company's strategy, Dahlgren explains.

"Strong cash flows make capital available for new profitable investments that drive growth. In addition, with a lower cost of capital, more investments become attractive and the number of opportunities for transactions and profitable acquisitions increases."

Initiatives carried out

Dahlgren explains that efficient capital management and a well-defined financial strategy are of vital importance to the credit market's confidence in Swedish Match. This, in turn, enables the company to borrow money for acquisitions or other investments on favorable terms.

During 2007, hard and structured work was carried out on a number of initiatives within the financial strategy.

"Throughout the year, we improved routines for the follow-up and development of investments. We worked actively on increasing transparency for the stock market as well as the credit markets. We also reviewed our financial strategy, which led to a new dividend and finance policy," Dahlgren explains.

The new dividend policy states that the dividend as a proportion of earnings per share will be increased and should be within 40 to 60 percent of earnings per share adjusted for major nonrecurring items. The revised finance policy states that the company will aim to maintain a level of net indebtedness that does not exceed three times EBITA*, thus minimizing the cost of capital.

Well-equipped for the future

Another financial initiative taken in 2007 was the continued rationalization of working capital. An example of an initiative within this area is Cash Race Relay, which aims to continuously develop work methods for minimizing tied-up working capital. The Group also sold its office property in Stockholm and continued repurchasing shares during the year.

"We have worked actively on our loan portfolio and the maturity profile of our loans. One example of this was our issuing of bonds with attractive maturities in the Eurobond market. This bond issue was a success despite the prevailing turbulent situation in the credit market."

Lars Dahlgren believes that Swedish Match's financial strategy is strong and well defined which makes the company well prepared for the future. If a company has its capital in order, it usually has its earnings capacity in order as well and these two characteristics strengthen one another.

"Our financial strategy for 2008 stands firm; at the same time, we are prepared for changes that may occur in the business environment. Although we are competent in many areas, there is always room for improvement in everything we do. Our goal is to constantly raise the bar."

* EBITA: earnings excluding major nonrecurring items, financial items, tax and amortization and impairment of intangible assets.